Russia battles back over sanctions

Russian President Vladimir Putin chairs a government
meeting at the Novo-Ogaryovo state residence outside
Moscow. REUTERS/Alexei Nikolskyi/RIA Novosti/Kremlin

Russia has fought back over new US and EU sanctions
imposed over Ukraine even as G7 leaders warned of further
steps, while Ukraine's government accused pro-Russian rebels of
placing land mines near the site of a crashed Malaysian
airliner to prevent a proper investigation.

Russia announced a ban on most fruit and vegetable imports
from Poland and said it could extend it to the entire
European Union, a move Warsaw called Kremlin retaliation for
new Western sanctions over Ukraine imposed on Russia on
Tuesday.

Moscow called the new EU and US sanctions "destructive and
short-sighted" and said they would lead to higher energy
prices in Europe and damage cooperation with the United
States on international affairs.

The confrontation between Russia and the West entered a new
phase this week, with the United States and European Union
taking by far the strongest international steps yet against
Moscow over its support for Ukraine's rebels.

The new EU and US sanctions restrict sales of arms and of
equipment for the oil industry, while Russian state banks are
barred from raising money in Western capital markets.

G7 leaders issued a joint statement on Wednesday warning
Russia that it would face added economic sanctions if Moscow
does not change course on its Ukraine policy.

The statement from the leaders of the G7 countries - the
United States, Canada, France, Germany, Italy, Japan and
Britain - was a show of solidarity among allies. They
expressed grave concern about Russian actions that have
undermined "Ukraine's sovereignty, territorial integrity and
independence."

"Russia still has the opportunity to choose the path of
de-escalation," the statement said. "If it does not do so,
however, we remain ready to further intensify the costs of
its adverse actions."

In addition, the European Commission published the names of
eight Russians, including some of President Vladimir Putin's
associates, and three companies that will have their assets
frozen as part of the sanctions. The people on the list
include Arkady Rotenberg, who is Putin's long-time judo
partner and has been on a US sanctions list since March.

Yury Kovalchuk and Nikolai Shamalov - the two largest
shareholders in Bank Rossiya, a St. Petersburg company that
expanded rapidly after Putin moved to Moscow and became
president in 2000 - were also blacklisted.

The companies named include Russian National Commercial Bank,
which was the first Russian bank to go into Crimea after the
region's annexation by Russia this year. The other two firms
are anti-aircraft weapons maker Almaz-Antey and airline
Dobrolyot, which operates flights between Moscow and
Simferopol in the Crimea.

FIGHTING NEAR THE CRASH SITE

On the ground in Ukraine, heavy fighting between government
forces and separatists has been taking place near the site
where Malaysian flight MH17 crashed into wheat and sunflower
fields on July 17, shot down by what Washington and Brussels
say was a missile supplied by Russia.

Kiev accused the pro-Russian rebels on Wednesday of
fortifying the area, including with land mines, to prevent
the site from being properly investigated. The land mine
report could not be independently confirmed. Ukraine is party
to a treaty banning land mines; Russia is not.

Ukrainian military spokesman Andriy Lysenko said the rebels
were digging in for battle near the crash site: "They have
brought a large number of heavy artillery there and mined
approaches to this area. This makes impossible the work of
international experts trying to start work to establish the
reasons behind the Boeing 777 crash."

The G7 leaders called on all sides to establish a ceasefire
at the crash site.

The new Western sanctions mark the first time Washington and
Brussels have adopted measures designed to hurt the overall
Russian economy, after weeks of narrow steps targeting only
specific individuals blamed for Russia's Ukraine policy.

German Economy Minister and Vice Chancellor Sigmar Gabriel
said the measures would hurt the European economy but would
hurt Russia more. The price was worth paying, he added: "At a
time of war and peace, economic policy is not the main
consideration."

Even so, Russian markets rallied, as investors deemed the
sanctions less severe than feared, with Russian stocks, bonds
and the rouble rising.

The first European economic victims of the trade war were
Polish apple growers, who sell more than half their exports
to Russia. Moscow is by far the biggest importer of EU fruit
and vegetables, buying more than 2 billion euros' worth a
year.

Russia said the ban, covering most Polish fruit and
vegetables, was for sanitary reasons and it would look into
expanding it to the rest of the EU.

Moscow denies Western accusations that it has armed and
supported rebels who are fighting Ukrainian forces in eastern
Ukraine. But Western countries say flows of heavy weapons
across the frontier have only increased since the airliner
was shot down, killing all 298 people on board.

Lysenko said 363 Ukrainian troops had been killed and 1,434
wounded since Kiev's "anti-terrorist" operation began.

Ukraine's fragile economy is also taking a battering.
Parliament will consider austerity budget amendments on
Thursday that are key to receiving IMF support and to assign
more financing for the army.

GOVERNMENT TROOPS ADVANCE

Despite what the West says is an increase in armaments for
the rebels, government troops have advanced since the start
of the month, when they pushed the rebels out of their
best-defended stronghold, the town of Slaviansk. Since then,
Western countries say thousands of Russian soldiers have
returned to the border from which they had withdrawn weeks
ago.

NATO military commander General Philip Breedlove said the
number of troops along the border was now "well over 12,000",
and weaponry was also building up.

Valentyn Nalivaichenko, the head of Ukraine's SBU security
service, said arms including Grad multiple rocket launchers
were flooding across the border.

"Grads come in from Russian territory, take pre-agreed
positions and fire on the Ukrainians. This is hundreds of
rocket launches. They come in, shoot around like in a safari.
This is serious military aggression," he told a news
conference.

The rebels are mainly holed up in the cities of Donetsk and
Luhansk, which they have declared capitals of two independent
"people's republics", as well as in the surrounding
countryside.

The sanctions are intended to persuade Putin to back down
from a months-long campaign to seize territory and disrupt
his neighbour, a former Soviet state of 45 million where a
pro-Russian president was toppled by street protests in
February.

But Putin, whose popularity at home has surged since he
annexed Ukraine's Crimea peninsula in March, has shown no
sign of backing down from support for the rebellion in parts
of Ukraine that he has referred to as New Russia.

The EU had been reluctant to impose tighter sanctions - it
has 10 times more trade with Russia than the United States
does, and all 28 members must agree EU decisions - until the
downing of the plane en route from Amsterdam to Kuala Lumpur.

The EU sanctions have nevertheless been crafted so as to
inflict the minimum hardship on Europe: Russia's oil industry
has been targeted but not the natural gas that fuels European
industry and lights its cities. Existing contracts are
excluded from the arms embargo, allowing France to move ahead
with delivery of a warship it has already sold for the
Russian navy.